The Quick Read: A hard money rehab loan does not wire the renovation budget at closing; the lender holds it back and releases it in stages, each tied to a line-item budget, verified progress, and lien paperwork, so on a full gut you usually fund each phase first and get reimbursed after the work is checked.
- Draws reimburse finished work. They are not advances, so you need working capital beyond your down payment.
- Every lender writes its own draw rules into the loan agreement. There is no industry standard.
- Most draw packages need invoices, an updated budget, progress photos, and lien waivers.
- An inspector confirms the work exists. That is not the same as a code or permit sign-off.
- Draw count, inspection cadence, and interest on undrawn funds change your real carry cost. Read them before you sign.
What Is a Draw Schedule, and Why Does Rehab Money Get Held Back?
A draw schedule is the plan for releasing renovation money in stages. The lender keeps the rehab budget in a holdback and pays it out as work is completed and verified.
What this loan actually costs to carry.
Hard money is sized against the project and priced by time. Enter the deal and see how much the program will lend, the cash required at closing, the carry while you hold it, and what is left at the exit.
Leverage tiers on the current program: 85% with fewer than 2, 90% with 2 or more, 93% with 5 or more completed projects — every tier capped at 75% of after-repair value. Loan amounts up to $5,000,000, larger by exception; terms of 6 to 18 months, interest-only, no prepayment penalty. The rehab portion funds in draws against completed work, not at closing.
Program parameters shown update from Lendmire’s centralized guideline source. Rate, points, and months are editable assumptions, not quoted terms.
Cost cap sets the loan · positive spread
Illustrative estimate only — not a quote, Loan Estimate, approval, or commitment to lend. Rate, points, and months are editable assumptions. Hard money is business-purpose financing for real estate investors, not a consumer mortgage. Leverage on the current program tops out at 93% of project cost for investors with a documented track record, capped at 75% of after-repair value, with rehab funding up to 100% of the documented budget released in draws; actual terms vary by lender, borrower experience, property, and exit. Lendmire is a mortgage broker, not a lender.
The logic is collateral. On a full gut, the house is often worth less mid-project than the day you bought it. Walls are open, systems are torn out, and nothing is finished. If the lender handed over the whole budget at closing and the project stalled, it would be holding a stripped shell. Staged releases keep the money tied to progress.
The budget behind the schedule is called a schedule of values. Procore describes it as a list of every line-item task with a budgeted amount, updated with each draw request. Your lender’s version comes from the scope of work you submit at underwriting.
Here is the part new investors miss. Draw rules are contractual. No regulator sets them for private hard money. The loan agreement, the rehab budget, and the lender’s draw policy control everything. One investor in a BiggerPockets discussion described lenders as running different but similar systems. That matches what we see across files.
How Much of a Full Gut Does Hard Money Actually Fund?
Across the network of lenders Lendmire works with, fix-and-flip leverage is measured against project cost, not just purchase price. Typical tiers run 93% of project cost for investors with 5 or more completed projects, 90% of project cost at 2 or more, and 85% with fewer than 2. Every tier is capped at 75% of after-repair value. Up to 100% of the rehab budget can fund in draws against completed work. All of this varies by lender, property, and experience, and none of it is a commitment to lend.
Two things follow from that. First, the rehab portion is a rehab-budget figure, not a purchase loan-to-value number. Second, the money arrives in draws, so a high-leverage structure still leaves you carrying costs between releases. Terms typically run 6 to 18 months, interest-only, so the schedule has to fit inside that runway. A credit score of at least 620 is the usual floor, with added conditions below 660. Underwriting stays focused on the property, the plan, and the exit.
How Does the Draw Cycle Work, Step by Step?
The cycle repeats for every phase. Here is the sequence, with who does what.
1. Budget and scope are approved at underwriting. Your line-by-line scope becomes the draw budget. Lenders vary from detailed reporting to general accounting, so ask which one you are getting.
2. Draw milestones are set. On a full gut they usually follow the build: demo and structural, rough mechanicals, insulation and drywall, finishes, then final and punch list.
3. You fund the phase first. Draws reimburse completed work. One investor in that same BiggerPockets thread said all of their lenders required starting with their own capital and then reimbursed 80% of costs.
4. You submit the draw package. Per Procore, that means invoices and receipts, the updated schedule of values, change orders, lien waivers, and a progress overview.
5. The lender reviews and orders an inspection. A third-party inspector or a photo review confirms the claimed work is physically there.
6. Funds are released, minus any retainage. Retainage is a slice held back until the end.
7. The final draw closes out the job. It usually ties to a final inspection, and on heavy rehabs some lenders also want a certificate of occupancy or equivalent sign-off.
What decides whether this runs smoothly? Budget quality, honest percent-complete claims, complete lien waivers, inspector availability, clean title, and your cash on hand.
What Does a Full-Gut Draw Schedule Look Like Phase by Phase?
A full gut is front-loaded with cost and back-loaded with finish work. That shapes the schedule differently from a cosmetic rehab, where a single inspection might cover most of the job. The table below is an illustration of sequencing only. Your lender sets the actual number of draws and what each one releases.
| Phase | Typical scope | Checkpoint | Main risk |
|---|---|---|---|
| Demo and structural | Teardown, framing, repairs | Photos or inspection | Hidden damage |
| Rough mechanicals | Electrical, plumbing, HVAC rough | Permit sign-off often needed | Permit delays |
| Insulation and drywall | Insulation, board, taping | Inspector visit | Missing waivers |
| Finishes | Cabinets, flooring, paint, fixtures | Inspector visit | Material delays |
| Final and punch list | Touch-ups, final systems | Final inspection | Holdback release |
Notice the first row. Demo and structural work is expensive and has the least to show for it. That is exactly where your first-phase cash gap lives.
More draws improve your cash flow but add inspection costs. One BiggerPockets investor chose about three draws per deal to limit those costs. Fewer, larger draws mean you front more money per phase. Neither choice is wrong. It depends on your reserves and your contractor’s terms.
What Goes Into a Draw Package, and What Does the Inspector Check?
A complete package gets reviewed. A missing piece gets parked. Plan to deliver:
- A draw request showing the amount you are claiming
- The updated budget with percent complete by line item
- Invoices and receipts for the work
- Any approved change orders
- Dated progress photos
- Lien waivers from the contractor and subs paid so far
Procore notes that lenders may postpone a draw until all lien waivers are in, because mechanics liens are the main lender risk. A lien waiver is a signed statement from a contractor or supplier giving up lien rights for the amount paid. A conditional waiver takes effect when payment clears. An unconditional waiver takes effect when signed. Many lenders want unconditional waivers for the prior draw before they release the next one.
The inspector confirms that the work you claimed exists. That is it. The inspector is not a code official and does not sign off on permits. Plenty of investors assume the lender’s inspector is a safety net for quality. It is not. Quality control is your job, and your contractor’s.
| Inspection style | What it checks | Tradeoff |
|---|---|---|
| In-person third party | Work on site, by line item | More cost, stronger proof |
| Photo or virtual review | Dated photos against budget | Lower cost, more reliance on you |
| Single inspection | One visit near the midpoint | Fewer checks, more trust required |
Cadence is negotiated. Some lenders inspect every draw. Some inspect once and accept photos otherwise. In one BiggerPockets account, a lender promised inspections and never sent an inspector. Get the cadence in writing.
Where Do Two Inspectors Collide?
On a gut rehab, you often answer to two inspectors: the city’s permit inspector and the lender’s. They do not coordinate. A lender may want permit sign-off on rough mechanicals before releasing that draw, while the city’s schedule is out of your hands.
When the two are out of sync, a finished phase sits unpaid while your contractor waits. Build slack into your plan. Ask your lender up front which draws depend on municipal sign-off, and tell your contractor so the payment schedule does not assume faster reimbursement than the process allows.
How Do Change Orders and Overruns Fit In?
Full gut jobs uncover surprises: rotted framing, outdated wiring, plumbing that fails when tested. The budget you approved at underwriting is the budget the lender pays against. Work outside that approved scope may not be reimbursable.
So treat change orders as a permission step, not paperwork afterward. Get the lender’s written approval before the work starts, and ask how money can move between line items. Lenders also generally pay against the lesser of the budget line and the actual contract, prorated by completion, so inflating a line item does not buy you a bigger draw.
If costs run past the budget, the extra comes from you or from a restructure. The best protection is a contingency line and cash you have not promised elsewhere.
Why Do Draws Get Delayed or Denied?
Most stalled draws trace back to a short list of causes, and most have a direct fix.
| Cause | Fix |
|---|---|
| Missing lien waivers | Collect them with every payment |
| Work outside approved scope | Get change orders approved first |
| Permit sign-off pending | Schedule city inspections early |
| Claimed progress exceeds site | Report percent complete honestly |
| Loan not current | Keep interest payments on time |
| Title issue or filed lien | Resolve with the lender before the next request |
HUD’s FHA 203(k) program is the one federal template with published draw mechanics. Its draw request form has the borrower and contractor report percent complete for each construction item, has an inspector certify the work, and holds back a final amount until all work is complete and no mechanic’s or materialmen’s liens remain. That is an FHA program, not private hard money. It is useful because it shows where draw logic comes from. Private lenders borrow the same ideas and write their own versions.
How Do You Pay Your Contractor Around the Draw Schedule?
This is where deals quietly break. Your lender pays you after the work is done. Your contractor may want money before it starts. A contractor in another BiggerPockets thread asked how someone with little capital can start work when funding only follows an inspection.
Align the contractor agreement and the lender’s draw schedule before closing:
- Match your contractor’s payment milestones to the lender’s draw milestones.
- Limit deposits to what your own cash can cover until the first reimbursement.
- Make lien waivers a condition of every payment, not a favor.
- Spell out what happens if a draw is partial or late.
Contractors who demand upfront money or refuse to sign waivers can freeze your draws. If you cannot bridge a phase, the project stalls with the meter running.
Where Do the General Rules Break?
Several edge cases change the picture. Expect these to differ by lender:
- Materials on site. Some lenders reimburse stored materials only with proof of purchase, delivery receipts, and photos. Others pay only after installation. Long-lead items like windows, cabinets, and HVAC equipment are where this bites.
- Upfront draws. Some lenders advance a portion of rehab money at closing. A BiggerPockets poster mentioned lenders offering 20% up front. Treat that as one data point, not a norm.
- Interest on undrawn funds. One BiggerPockets investor said all of their lenders charged interest on the full balance from closing. Others charge interest only on funds disbursed. This changes your carry cost more than most borrowers expect.
- Pay-through-title. Some structures route draws through a title company that updates title at each release and can pay subs directly. Others wire you.
- Final draw conditions. Final inspection, punch list completion, and sometimes a certificate of occupancy gate the last release.
What Does This Cost You in Carry?
Every term in this schedule feeds your holding cost. Inspection fees add up with each draw. Slow reimbursement stretches the time your cash is tied up. Interest on undrawn funds, if your lender charges it, raises the cost of money you are not even using yet.
Stress-test your timeline. On a full gut, a few late draws can eat into a 6- to 18-month interest-only term. If your plan only works when every inspection happens on the first try, the plan is too tight.
What Happens After the Final Draw?
The exit is the point of the whole schedule. Many investors refinance out of hard money into long-term DSCR financing once the property is stabilized, and Lendmire brokers that path. A DSCR refinance generally depends on the property being finished, leased, and appraised, so draw delays push that date back. DSCR loans qualify primarily on property-level rental income covering the payment, subject to lender guidelines. For the full picture of how that financing works, see Lendmire’s complete DSCR loans guide.
Key Terms Defined
Draw schedule: The plan for releasing renovation money in stages as work is completed and verified.
Holdback: The part of the loan the lender keeps in reserve for rehab costs instead of paying at closing.
Retainage: A portion of each draw, or of the total, withheld until the project is complete.
Schedule of values: A line-item list of every task in the budget with the dollar amount assigned to each.
Lien waiver: A signed document in which a contractor or supplier gives up lien rights for the amount they were paid.
After-repair value: The estimated value of the property once the renovation is finished.
Change order: A written change to the approved scope or budget, ideally approved before the work begins.
Questions to Ask Before You Sign
Use this as a borrower checklist when you compare term sheets:
- How many draws are allowed, and is there a minimum?
- What does each milestone release?
- Who inspects, how often, and who pays for it?
- Does interest accrue on the full balance or only on funds drawn?
- Which documents are required with each request?
- Are stored materials ever reimbursable?
- How are change orders approved and budget lines moved?
- What triggers a hold on a draw?
- What does the final draw require?
Frequently Asked Questions
Do I need my own cash to start a full-gut rehab on hard money?
Yes. Draws reimburse completed work, so you generally fund the first phase yourself. The amount depends on the lender, the budget, and how the first draw is structured. Size your reserves around the most expensive early phases, plus a cushion for delays.
How many draws will a full-gut rehab have?
It varies by lender and by the size of the job. A full gut usually has more milestones than a cosmetic project because the work moves through demo, rough mechanicals, drywall, finishes, and closeout. More draws help cash flow but add inspection costs. Confirm the count in the loan agreement.
Is the draw inspector the same as a city or code inspector?
No. The lender’s inspector confirms that the work you claim exists. A municipal inspector checks permit and code compliance. Some draws may depend on both, so line up the two schedules early.
Can I get reimbursed for materials before they are installed?
Sometimes. Some lenders pay for stored materials with purchase proof, delivery receipts, and photos. Others pay only for installed work. Ask before ordering long-lead items.
What happens if I go over budget mid-rehab?
The lender pays against the approved budget, so overruns generally fall to you unless the lender approves a change. Get changes approved in writing before the work starts. A contingency line in your original plan makes this much easier.
Working Through the Numbers With Lendmire
If you are buying, rehabbing or refinancing an investment property on a short timeline and want to see how the numbers work, Lendmire can help you compare hard money options based on the project, the exit plan, leverage, and your goals. Lendmire is a broker that arranges hard money and DSCR investor loans through select lenders in its network across 41 markets, including Washington, D.C. Every file is underwritten individually, and programs vary by lender, property, and experience.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage focused on DSCR investor financing, helping arrange programs through wholesale and investor-lending channels in 41 markets, including Washington, D.C. DSCR loans are evaluated by the lender on property cash flow rather than personal income, subject to lender guidelines, supporting LLC closings and accommodating investors with four or more financed properties. Scotsman Guide Top Mortgage Workplace in both 2025 and 2026.
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References
1. Procore, Construction Draw Request Process
2. BiggerPockets: private and hard money lender rehab draw requirements
3. HUD Draw Request Form 9746-A
4. BiggerPockets: hard money lender draw process
This article is part of Lendmire’s hard money loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Get Hard Money to Buy at Auction With an Inherited Tenant? · Keeping Seller Financing vs Refinancing Into a Hard Money Loan · Is a Full-Gut Rehab Fully Financed on a Hard Money Loan?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.